The United States of America would not exist without riots. Nor would many other modern nations. Riots like the one 1770 in Boston are an integral part of revolutions, and most nations had some on their way from earlier more tyrannical forms of government to modern democracy. Having said that, the London rioters make for rather unlikely revolutionaries. As one lady in the middle of it said so correctly: "we are not all gathering together and fighting for a cause. We are running out of Footlocker and theifin shoes." Stories of rioters using Blackberries to text each other about where to get "free stuff" and mostly targeting brand clothing and electronics stores cast doubts on both the motivation and degree of poverty of the rioters.

Nevertheless British politicians dismissing the rioters as just criminals don't get the whole picture either. There were far too many of them to be just a criminal gang, it was more like a movement. And then you have to ask yourself why so many young people considered rioting and looting a better use of their time than what they were doing otherwise. Unemployment is not an excuse for criminal behavior, but often enough the root cause.

Of course rioting will not solve anything in the short term, and we are still a long way from a revolution. Nevertheless I wouldn't totally exclude the possibility of a revolution either, not if we continue like this. Politicians not only looked very helpless in face of these riots, they also offered only the full panoply of all the wrong solutions: The left thinks more welfare would calm the youths down, while the right wants to lock them all up and remove their benefits. The former plan of redistribution isn't economically sustainable, and the latter plan is the direct way into a police state. If you have 25% youth unemployment, you can't just lock them all up.

I believe the solution to be very different, not redistribution but a different distribution of the added value produced by companies right when they produce that value. And I believe the culprit who caused things to go wrong wasn't some politician, but an accountant hundreds of years ago, when the rules of company accounting were first invented. Let me explain:

Companies create value. They turn some lower value inputs like raw materials and energy into final products which have a higher value. Or they create value through services, like the distribution of goods. The added value the company creates is then flowing to the various stakeholders of a company, mostly the investors and the workers. A proper measure of how good a company works would calculate the added value created by the company by counting the value of the goods or services produced, and deducting the cost of the raw materials and energy consumed in the process.

Unfortunately real companies don't calculate like that. They do count the value of the good or services produced and deduce the cost, but at some point in time some accountant decided that salaries were a cost. That is an extremely narrow view, which is only true if you are the investor, and the only added value created that interests you is the one going into your own pocket. From a larger point of view, for society, it only matters how much total value is added, not whether that added value lands in the pocket of the investor, or in the pockets of the workforce.

This wrong way of accounting for investors profit instead of total added value over the centuries has led to companies doing their utmost to become "more efficient" by reducing labor cost. If money given to employees is a "loss", you strive to avoid that loss. What companies should have done instead is searching for the optimum number of workers which would maximize the total added value created by the company. It is pretty certain that this optimimum for total wealth creation would mean more employment, even if the share of the profits for investors would be somewhat smaller. But the benefit for society would be huge: Less unemployment, more value creation, and more money going towards people who actually spend that money, thus growing the economy even further. And ultimately less riots. Because if you can afford to shop for expensive trainers at Footlocker, you're less likely to go looting them.

If Gross = Profit + Costs and Salaries are not a Cost then what are they?

They can not be a Profit as it was a financial loss for the company, necessary but still not actual capital that the person/business gets to keep.

If it is a benefit to society more than just general costs then it is something that should be treated specially for tax purposes. Such as some percentage above 100 is used to count as a deduction therefore making it a tax benefit to keep employees.

And of course, companies would be remiss to not acknowledge that having a thriving economy brings in benefits of more potential consumers and thus growing your own business.

It's a shame really; I keep tabs on a tech-oriented law blog and it makes me facepalm everytime when there are clear opportunities for mutual growth (i.e. the company does something good for the consumer, the consumer becomes willing to pay more for a product), but the company would rather exploit the consumer as much as possible at a lesser gain.

The problem is that the investor bears all the initial risk. Without the investor, there is never a job to pay a salary for in the first place. This form of accounting would hide risk from the investor, and seriously hamper transparency.

While your rebellion against accounting definitions is well intended, labor is a cost, not a benefit. For all desirable X, if you can work less to get X, that is better. Putting scare quotes around "more efficient" does not change this.

Your ideal scheme seems to demand that someone decide whose work adds value and who is just a cost, unless you are actually arguing that paying Alice to dig holes and Bob to fill them adds value to society. We currently tend to decide whose work has value by who can successfully demand remuneration for that work. The someone is more likely to be a self-anointed philosopher king who would assign value for political reasons rather than what actually adds value to the world.

Every variation of the broken windows fallacy misses a basic point: labor not used on X can be used for Y. The company that makes X does not add value to the world by employing people who could be making Y but instead are just contributing extra costs to X.

I agree, but implementing this better accounting would be a problem. After all, the investor cares only about his value, not societal value. You'd have to either remove investors as a class. Alternatively, make all the workers also owners (investors), so that the profit of the company is split among workers and investors as equals (though there is still the question of who is more equal).

There's another driver in a free economy called competition. Companies also compete against each other to produce products more efficiently. Unfortunately in such an environment, producing the same product at the same quality with a higher wage bill would put you at a serious disadvantage, and potentially out of business.

It's not always about making massive profits. In fact, for many companies it's often about survival - and a low wage bill helps a lot. What I'm trying to say is that the drive for higher efficiency (less and lower wages in this case) is often not a profit concern, but a cash flow concern.

No, it doesn't. If it would, then why is a company valued differently depending on whether you use US or European accounting rules? Accounting rules are arbitrary agreed upon, not a reflection of reality.

I simply do not see how you can possibly put salaries into a different category and end up with any meaningful information.

I'll help with an explanation: You have a company that turns $100 worth of raw materials and energy into a pair of $200 trainers. That creates $100 of value. Whether you create that $100 of value with robots demanding no salary, with one worker for $30, or with two workers for $60, does not change the $100 of value created. It *does* change how much profit you as the owner of the company gets. But if you only get $40 and two workers each get $30 the same $100 still got added to the economy, macroeconomically speaking. The added value your company creates just is distributed differently.

Then how do you define profit?

Salaries *do* reduce profit. What I'm arguing is that companies shouldn't maximize profit (which only benefits the investors), but total added value, which is the overall benefit of the company to the economy.

Imagine you have a company completely owned by yourself, and employing only yourself as workforce. You decide to pay yourself a fixed salary for tax reasons. Does the height of that salary change anything? No, it doesn't, because it isn't a true cost.

Your ideal scheme seems to demand that someone decide whose work adds value and who is just a cost, unless you are actually arguing that paying Alice to dig holes and Bob to fill them adds value to society.

You don't understand. There is not "someone" involved deciding what adds value. You simply count the value of the goods and services produced, minus the cost of the raw materials and energy consumed. A company digging holes and filling them up does not create any valuable good nor services, so zero value created minus the cost of the wear on the shovel will show this to be a negative added value in my accounting system as well as in yours. And my system says that it isn't a good idea REGARDLESS of the salary you pay to Alice and Bob, even if they work for free.

Every variation of the broken windows fallacy misses a basic point: labor not used on X can be used for Y.

You got your fallacies mixed up, man. You are talking about the lump of labor fallacy, not broken windows. And my system very well accounts for that, because it searches to maximize overall value added.

Labor that isn't used for X *can* be used for Y. But frequently isn't. Which is what is wrong with the current system of counting things, because it only minimizes labor used, and doesn't care what happens with the excess. That labor Y you decided not to use often isn't doing anything productive, but at best sits in front of the TV consuming welfare, and at worst goes rioting and looting in the streets.

It's not a system you suggest Tobold, it's a point of view. Accounts reflect a view of reality, primarily that required by investors. That's an important view, because without it, there would be no investment in your business.

What you should perhaps be asking for is the development of an equally complete view for other stakeholders. The one you want appears to be God's view, but perhaps the government could step in for him. It's hard to see who else, investors apart (and why should they care?), has the necessary power.

"I'll help with an explanation: You have a company that turns $100 worth of raw materials and energy into a pair of $200 trainers. That creates $100 of value. Whether you create that $100 of value with robots demanding no salary, with one worker for $30, or with two workers for $60, does not change the $100 of value created. It *does* change how much profit you as the owner of the company gets. But if you only get $40 and two workers each get $30 the same $100 still got added to the economy, macroeconomically speaking. The added value your company creates just is distributed differently"

Then logically this means passing control of the company from the owner to all of the actors.

There have been some successful examples of this working.http://en.wikipedia.org/wiki/Worker_cooperative

Having worked in a coop I've seen some of the drawbacks and some of the pluses. It's quite draining, basically every decision is taken by protracted argument (or at least it was in ours).

But we certainly need to rethink the standard business model, all of the West's capital is gradually leaking offshore and the rest of the world can do anything we can but cheaper. At this rate in 100 years we'll be 3rd world countries.

From a larger point of view, for society, it only matters how much total value is added, not whether that added value lands in the pocket of the investor, or in the pockets of the workforce.

Actually, for society (seen as society in a single state, e.g. UK), it makes a lot of difference.The workforce is local and is very likely to spend the money locally, helping the local economy (shops, services, ....). The investor is likely to look for the better ROI, which, thanks to globalization, right now tends to mean investing in Asia. This does squat for the local economy.

To put it in different words: it looks like companies want the workforce at chinese price and customers at western-countries income.

@Tobold,If you maximize only value created and not profits and do so by increasing your salaries as much as possible, you leave no margins. This means no cash for R&D, expanding operations, staying afloat in hard times, or even reducing costs of finished products for consumers.

That last part - cost of products to consumers - is what really kills your idea in my opinion. Think about it.

A private company's ultimate goal is profit, most of the time, at all cost. Since we are living in a world economy where stagnation means death, even the most profitable companies have one goal: make more profit. Individuals are not important in this equation and in a world with more and more available, replaceable (and demanding) workforce, it'll only get worse. It's totally logical for a company to wipe out it's entire local workforce and move to a country where it will cost less. Consider a private company as a cancer with only one purpose, to spread out.

A governement on the other hand has a different goal: the good of collective of the individuals it represents (note the individuals themselves). Profit is removed from the equation, replaced by "balance" (usually) and individuals become important. Food control, quality controls, minimum wages, union rights, public sector (etc) are things only a governement can do but profit is not in the equation.

For this to work as a whole, you therefore need a balance between private companies power, and governance power.

When you have a problem is where a governance power stops considering their people as the ones they reprensent, and replace them by the private sector.

When you look at politics today, you'll more and more see that the private sector is now considered like a more important human being than you or your kids.

In France (where I live), this is recent (since the 70s mainly) and we have a strong history of governance so we fight against such changes of focus. Of course, that hinders our economic strength in this global economy, but it also helped a lot when the "eternal growth" ideology collapses on itself.

In the US, the electors are less and less considered an important factor, especially now that private companies can funnel so much money during elections, becoming a full fledge "citizen", with way more power than any single individual, or even a collective. The US government is no longer a government of the people, for the people, but of the private sector, for the private sector.

In the UK, they have been trying to move toward the US views for years and are paying the price because they forgot that they are not an adolescent country like the US, they have centuries of history, not easily wiped clean.

For years, many of the old countries were charmed by the youth exuberance of the US and tried to imitate it. Now they are waking up from their insane hangover and remembering that they've been through all that crap before, they were young once as well, and they grew out of that crap because..well, it was stupid.Hopefully the US will finally become an adult someday though looking at how things are going lately, it's gonna take some time.

If you maximize only value created and not profits and do so by increasing your salaries as much as possible, you leave no margins.

I don't think so. If there is a correct maximization of total added value (I do NOT propose a maximization of salaries), all these factors like margins for R&D are included. I'm only proposing companies calculate how much value they add overall, instead of only calculating how much money they make for their owners.

Who is it that should be doing the accounting this way?

Accounting is DONE by companies, because they are the only ones who have the data. But what accounting data they publish is determined by eternal organizations, like accounting standard boards or the SEC. A good first step would be to force companies to publish that number prominently in their annual reports, of how much value they added in the previous year.

"Accounting" is a wide concept, and it can (and often is) done by others than corporations themselves.

You seem to agree that from the point of view of the company itself it makes no sense to view salaries as anything other than a cost. What you are talking about is a benefit to society as a whole. You appear to seek a more holistic outlook in investors: investors that base their decisions not only on the short-term return on their investment in dollars but a longer-term gain for all (and more dollars in return, down the line, through wealthier consumers and less vandalisation).

I think many countries around the globe are wrestling with that question. Ironically, many of the ones that appear to share your aims are such that through taxation actively deter companies from employing more people. Conversely, many typically "capitalist" states have governments that make recruiting and hiring people very cheap. I appreciate that this is not exactly what you are talking about, that you are reaching wider. But taxation as a deterrent is certainly quite impressive. In my company, every dollar invoiced yields about 25 cents in the pockets of one of my employees (or myself, for that matter).

Tobold, I love reading your blog but this post is way off the mark unless you're trying to make some sort of political statement. Note that I am a business owner AND a Chartered Accountant so I think I'm on safe ground making a comment.

The primary users and indeed payers of financial information are investors. They use this information to either make investment decisions or to check on the health of previous decisions. To ignore employment costs would muddy the waters so much as to defeat the whole point of preparing accounts in the first place. Seriously would you invest in a venture if it made no profit but added greater 'value' to society than an alternative? Note that it isn't just affluent and rich people making these decisions - it's also hard working retirees deciding where to put their hard earned life savings.

You seem to agree that from the point of view of the company itself it makes no sense to view salaries as anything other than a cost.

From the point of view of the company itself or the investors it also makes perfect sense to NOT count costs like pollution or carbon emissions, as the wider cost of those is born not by the company, but by society.

Regulation and tax rules can force companies to consider the benefits and costs they have for society. Introduce a carbon tax, and companies start optimizing their carbon emissions. Introduce a tax relief for total value added, or for salaries paid, and suddenly there is less of an incentive to maximize profits by minimizing employment.

Labor that isn't used for X *can* be used for Y. But frequently isn't. Which is what is wrong with the current system of counting things, because it only minimizes labor used, and doesn't care what happens with the excess. That labor Y you decided not to use often isn't doing anything productive, but at best sits in front of the TV consuming welfare, and at worst goes rioting and looting in the streets.

This is where it all falls apart. You are speaking as though corporations (and government) are the only way that labor can do something. You can go start a company. You can go get another job. There are literally billions of people that I will not be hiring for any job, and most of them manage to find other productive things to do with their time.

There are always more productive things that you can do with labor. Go do something useful instead of waiting for someone to give you something useful to do.

I'll help with an explanation: You have a company that turns $100 worth of raw materials and energy into a pair of $200 trainers.

I don't think you understand your own example. Human energy is still energy. If you use two hours of human time, that is a cost. Those humans could do something else.

This apparently bears tremendous amounts of repeating: human beings can do other useful things. They do not need to wait for a company to employ them. You can go forth and do something of value right now.

This apparently bears tremendous amounts of repeating: human beings can do other useful things. They do not need to wait for a company to employ them. You can go forth and do something of value right now.

Theoretically, yes. Practically it doesn't work that way. In the UK (and the average of the rest of Europe) youth unemployment is 20%. In Spain it is close to 50%. If it were so easy to "go forth and do something of value", then how do you explain numbers like these? Only a small percentage of people has sufficient entrepreneurial spirit. What do you propose to do with the rest? Let them riot and then lock them up in prison?

"Only a small percentage of people has sufficient entrepreneurial spirit."Plus, entrepreneurial spirit alone isn't worth anything. You need to find a fitting niche in the market, a place where either competition is close to nonexistant or at least something that is done so bad right now that you can easily do it better. Otherwise your competitors will be bigger and more experienced than you, making it unlikely that you will find enough customers to survive.

Reading the discussion this far I find it astonishing how few people are actually able to take on a viewpoint that is larger than a single company. A company in its simplest form is a group of people who banded together in an organized fashion to accomplish something they couldn't do on their own. To complicate the picture you can divide those people into some who work and some who organize. Complicate it even more and you could add some people who are not even part of the company and only give them funds. Still, there is not yet any reason to single out anyone as so hugely more important than the rest that it is justifiable to give all the rest barely enough to live so he can have more than he can ever spend. The justification for that arises because you say "the rest only works for the company (they should be grateful they have work!), but that guy gives MONEY".However I would argue that giving part of my life to the company is worth more than the monetary contribution some guy who just gives 0.1% of his already obscenely huge pile of money.

I think the only 2 arguments against giving a bit more money to the employees:- More money to employees means more expensive products- More money to employees means less money for investors, means lower stock exchange value

As for the first: Thats only true if one company does it on its own. If you fix it by law everyone has to and everything is even again. Sure, companies could leave.. but we already have no problems putting high taxes on agricultural products from some countries, why not expand the concept to companies from countries who still rip of their employees? Plus I'm not really proposing to change the price of a product at all.. I just want to shift a bit of the money from the big money guy to the employees, leaving only problem number 2.

For the second problem: Simple solution. Just cap the amount of money for investors to a percentage of the profit. And make the very same profit the basis for taxation, finally eliminating the disgusting calculations of most companies to hide away most of their profits to avoid having to pay taxes.

The only problem that persists would be that the last rule would have to be universally agreed on I think.. and many americans seem brainwashed enough by their american dream that at least the US would probably not agree.

Interesting theory. But let me ask you about one thing that you overlook that is VERY important to the economic process here in America, as well as in the UK:

We have a process here in the US called the "middleman" effect, and it is a process that adds 30-50% to the costs of most manufactured items. The problem we have right now, is that by the time a product is made by the manufacturer, it changes hands no less than 3 times before it ends up in a space where consumers can consume it.

I like your ideas, but how could any system remain viable when something produced in China for $7.00(for example), winds up in your country on a shelf with a $160.00(or more) price tag? Even the most simple of economic theories will tell you that this is not sustainable.

The "middleman" effect adds an undue burden on any economic system, yet the problem isnt given any consideration due to the fact those "3 hands" I speak of, are all controlled by investors at some higher level, and ALL of them are looking to extract as much profit out of an item that they did NOT have a hand in producing.

How does your "accounting" philosophy take the above into consideration?

I like your ideas, but how could any system remain viable when something produced in China for $7.00(for example), winds up in your country on a shelf with a $160.00(or more) price tag?

I would see that as an opportunity. Because while I might not be able to produce the same item in the USA for $7 or less, it should be possible to produce it for less than $160. Thus an opportunity for profitable employment in the USA.

For the second problem: Simple solution. Just cap the amount of money for investors to a percentage of the profit. And make the very same profit the basis for taxation, finally eliminating the disgusting calculations of most companies to hide away most of their profits to avoid having to pay taxes.

The solution for investors is simple as well -- flee that regulatory environment for one where they capture all of the profits.

There seems to be a misconception about the market. It wasn't "decided" by anyone. It was developed incrementally based on what WORKS. To just decide how everyone "should" do things is as silly as "deciding" that everyone should evolve a third arm. There's a reason we have two arms, and there is a reason we keep accounts the way we do.

Phelps, but then you are advocating that whoever has the most power should be able to blackmail the rest. Currently investors have most of the power, but that is also based on current law, and how society currently behaves. Investors weren't always allowed to take their money out of the country, for example.

If we continue with this investor-centric way of running everything, sooner or later bad things will happen. Today it's just youths looting London shops. Tomorrow it might involve even more violence. Only a very small percentage of people lives from their investment. If you give all the power to them, and give less and less to the majority, sooner or later you have a revolution on your hands. Either by violence, or by democracy, where the majority decides to install laws that prevent the minority of investors to hold the rest of society hostage.

- Grants and subsidies were more thoroughly monitored in order to detect fraude.

- If public entities (hospitals, schools, etc.) had to publish their records and all the suplliers had to be chosen in public biddings.

- If the fiscal loopholes were closed and capital gains had as much taxes as a worker.

- All tax havens should have extra taxes on capital movements to and from them. meaning, no more having a postal box in Cayman that happens to be the headquarters of a large multinational.

This is simplistic, I know but roughly I do believe this would be the way to go. The trickle down effect is a bunch of crap as history can attest so no more of that, let the super rich pay their due.

Also there is the iniquity in US where some claim the country cannot afford to have universal healthcare and yet they spend more money on military personal and weaponry than the rest of the world combined.

But I also like your Maximum Value Added idea. The problem with that is the same with my taxes suggestion. The rich have almost unlimited access to the policy makers and thus they can influence (at best, bribe at worst) said politicians in order to pass the laws that favor their stakes...

As no one in history ever gave up power (yes, probably there is an example somewhere, almost certainly religious) then we know that it will all end in tears someday.

So actually people and specially the status quo should be grateful that the hoodies are raiding brand name shops. Because when the revolution is here, they will be raiding police precints and military bases. And they will throw more than rocks and piss filled bottles.

I would see that as an opportunity. Because while I might not be able to produce the same item in the USA for $7 or less, it should be possible to produce it for less than $160. Thus an opportunity for profitable employment in the USA.

Yes, but you are assuming that investors would be willing to provide venture capital for a business if using the same scale of profit oppurtunity, which would be much different if the product was made in the US. The "middleman" effect and price markups along the distribution chain is what determines the final price of a product, not some ideological "perceived" value of the item.

If that same item were produced in the USA, then wages, insurance, taxes, the "middleman" effect and investor return expectations would ensure that the end consumer cost would far exceed the $160.00 price point.

No we won't. Probably the standard of living will be reduced but sooner or later all those workers in those countries will either continuing to work for peanuts so we can consume or their wages will start growing and it won't be more profitable to build overseas. And remember, I don't think oil will be getting any cheaper. It's only a matter of time until it becomes cheaper to rebuild the factories at home than have them hauled from China or Taiwan. And by then, they will be busy with their internal market.

Currently investors have most of the power, but that is also based on current law, and how society currently behaves. Investors weren't always allowed to take their money out of the country, for example.

Whether they are "allowed" to do it or not, they do. When you make regulations hostile to the free market, then you foster fraud, smuggling and the violence and general low regard for the law that comes with them. See: the war on drugs.

If we continue with this investor-centric way of running everything, sooner or later bad things will happen. Today it's just youths looting London shops. Tomorrow it might involve even more violence. Only a very small percentage of people lives from their investment.

I challenge this very idea. We do not have an investor-centric way of running everything, and that is the problem. We have far, far too much socialism, which encourages the worst behaviors of man. The "youths" looting in London are not part of the free market, and that is the problem. They have lived lives on the dole, and have not been taught by society how you live in a culture where your income is not taken from others by force (which is exactly what the dole is.)

All the riots in London are doing is the same thing the state has been doing, just accelerated with the middle-man taken out. Take from those who create and give it to those who consume, destroying the bulk of it along the way.

You can't "prevent the minority of investors to hold the rest of society hostage". Without investors, there is no productive society. There's no one to hire the "proletariat". When you are hostile to investors (and all the solutions proposed are hostile to them) then they simply quit. They stop investing, and they live on savings. If the savings are taken from them, then they just go on the dole like everyone else.

Without investment and capital, there is no economy. The more investment is encouraged and protected from interference by those with no stake, the stronger the economy becomes.

- Grants and subsidies were more thoroughly monitored in order to detect fraude.

Here's the problem with fraud -- it is designed to be undetectable. That is what makes it fraud. You know how you get rid of fraud in grants and subsidies? Get rid of grants and subsidies. They are ridiculously easy to defraud.

- If public entities (hospitals, schools, etc.) had to publish their records and all the suplliers had to be chosen in public biddings.

All for it. Transparency and sunlight are king when it comes to reigning in government. Even better would be to remove hospitals and schools from the public holdings and make them private and competitive.

- If the fiscal loopholes were closed and capital gains had as much taxes as a worker.

I agree if the rate of taxes on income is 0%. Tax property and consumption. That lets people decide how much they are willing to pay in taxes (based on how much they buy.) To tax earnings just discourages people from earning, which discourages them from producing.

- All tax havens should have extra taxes on capital movements to and from them. meaning, no more having a postal box in Cayman that happens to be the headquarters of a large multinational.

Bad idea. If you could implement it (and it would encourage tons of fraud that would have to be rooted out in implementation) all it would do is to ensure that the capital never made it back into the country and the local market. Money goes to where it can be used most efficiently. Always has, always will. You would have a net drain of capital to the "havens" that never came back. 90% of 0 is still 0.

When you guys have these pie-in-the-sky dreams, you should filter them through the drug war and what drug lords do. What you are really saying is, "I want to criminalize the normal behavior of the market." Once you do that, the market players will start acting like criminals. They will start acting like drug lords, and if those guys living in jungles with high school educations can launder their money and evade taxes, you can bet your ass a Wall Street tycoon can get around your dreams.

"The solution for investors is simple as well -- flee that regulatory environment for one where they capture all of the profits. "If you read my post to the end you surely noticed that I admitted that the difficult point would be reaching an agreement among the nations. The investors can't flee if its the same everywhere. And they still won't stop investing at all, because investing STILL would yield profit. Not as high profits as now, but damn way more than living from their savings.

"Even better would be to remove hospitals and schools from the public holdings and make them private and competitive."Uh yeah, great idea! And all the investors will try to fund that one hospital that has the idea to let its inmates bid on cures for their sicknesses. Five guys with broken bones? Today only one will get mended, lets see who of them is willing to pay most! The others can stay cripples, it will be a warning to others to encourage them to bid more agressive. After all if not even your health is worth your fortune, what is?

As for the Caiman-postal-box-headquarter: How about paying taxes where you sell goods instead of where your headquarter is?

On the war on drugs: Strange thing there.. Drugs are univerally forbidden in nearly all high developed nations, yet the US are the only ones who have a war on dugs. All other countrys seem to have it pretty good under control, so maybe theres more to it than just "if you forbid something profitable it will run amok".

If you read my post to the end you surely noticed that I admitted that the difficult point would be reaching an agreement among the nations. The investors can't flee if its the same everywhere.

It will never be the same everywhere. You've created a Prisoner's Dilemma.

http://en.wikipedia.org/wiki/Prisoner's_dilemma

Some country somewhere will break from the agreement and get tons of capital from people fleeing economic oppression.

After all if not even your health is worth your fortune, what is?

Funny, there are private hospitals all over the world, and none of those problems have come up. For your next wikipedia link, look up psychological projection.

On the war on drugs: Strange thing there.. Drugs are univerally forbidden in nearly all high developed nations, yet the US are the only ones who have a war on dugs. All other countrys seem to have it pretty good under control, so maybe theres more to it than just "if you forbid something profitable it will run amok".

"Phelps", you do realise that the only reason western countries have been "successful" for the past centuries is because they were exploiting ressources (natural, human, etc) from other parts of the world right?

Before the world began to shrink in relative size, population of the old european countries were exploited by the ones with strength (of arms, economic, religious).When the old powers started to expand their control, the local population began to thrive and this resulted in many social, philosophical revolutions. Meanwhile, the burden of it all was placed on the "colonies".

This "relationship" began to shrink as more and more countries entered in the modern ages, rejectting the burden the old countries put on them.Today, the old powers are just a shadow of their former selves and they are losing their dominance every day a little more and they are having a hard time going back to carrying the burden of their economics.

Basically, we all grew on the back of others for centuries, and now we have no backs to carry us and since we are more "evolved", cultured, educated, we refuse to do it.

The extremes of socialism is a plague on the people affected by it (that much is obvious).But the extremes of capitalism we've seen for the past 2 centuries has been a plague on every single country less evolved. Of all these countries the US has been leeching the most of their strength from every other part of the world for years, laughing about their own power, while they were simply vampires bloated with blood.And because today you can't suck blood elsewhere as good as you use to, you start doing it at home once again.

Note that I'm not judging per se. It's been historically logical for ages for a strong country to feed of the weaker ones.

But I do hope you guys realise that talking about investment, regulation, taxes and what not is just blabla. What matters is finding the new bodies to feed upon if we want to continue as we've been doing (even in France btw, but to much lesser extend) and if we don't find it, no matter what we do, we're screwed unless we can design another system, one that is sustainable on the long run.

Basically, we all grew on the back of others for centuries, and now we have no backs to carry us and since we are more "evolved", cultured, educated, we refuse to do it.

That is silly. We are both sides of your infantile "exploitation" idea. Significant percentages of the population of the west are from your so-called exploited areas. Any real exploitation ended with slavery and colonialism. (And no, investing in a country is not "colonizing" it, and is insulting to those who had to suffer under real colonialism.)

[I]Significant percentages of the population of the west are from your so-called exploited areas.[/i]I'm not going to get dragged into a lengthy debate over this but I highly advise you to travel a bit around the world and see the difference between poverty in a western country and poverty in one of the less developped countries.Why do you think a lot of people rather be homeless and poor and illegals in our countries, then live in their own?

Slavery and colonisation were types of exploitations. Today, especially since the rise of the WTO and most of all the Marrakech agreement, exploitation is done via economic means, with just a touch of raw strength mainly via the US (and it's allies) military power and overall foreign policy.

What do you think companies like Exxon are doing in African countries but totally ruin the countries's ecology, abuse and maintain corrupt systems, and exploit local workforce.Why do you think most helpdesks moved into India, Pakistan and some arab countries? Abuse local fiscal laws, abuse local workforce.What do you think mega-agrocorps are doing in Brazil, Argentina, etc? Totally destroying local agriculture, force every single land owners out and turn the country into mono-culture mastodontes, abusing lack of local environmental protection laws.

Remember, the ONLY goal of a company is to make profit, no matter the means. The bigger the company, the truer this gets.

Of course, as you can see, there is a problem when these countries start to evolve and say: screw you too. That's usually where the US military comes into play :)

Whatever the aims of multinational corporations and the virtues of investment versus the harm of exploitative effects, I dare say it cannot be denied that multinational corporations' involvement in third world countries illustrate extremely well some of the most morally interesting problems with the capitalist system as a whole.

Consider the recent drive from rich-country corporations to purchase enormous swathes of land in Africa for future farming purposes. Only three years ago, Daewoo Logistics tried to buy up almost half of the arable land in Madagascar in order to secure a low-cost supply of food for South Korea in the future, with the stated aim of "reducing the need for imports"! Colonialism?

(Sorry, Tobold. Perhaps this is now too far off topic. I just felt that Mr. Phelps' comments were a bit too Ayn Rand to pass up completely.)

Here's the thing. Third world countries suck. Socialist countries can't help them -- they are hanging on by the skin of their teeth now, and the weakest, like Greece and Ireland, are already collapsing under their own weight.

Under a free market, investors can help third world countries, as long as there is a profit to be made. Remember, America was one of these "savage colonies" being "exploited for its natural resources" 300 years ago.

This is the natural way of things. A place that is unimproved has nothing else going for it but its natural resources. It's people are unskilled and uneducated, there's no way to process what they have, etc etc. Once the "exploitation" starts, the investors start improving the infrastructure. They set up basic utilities. They bring in communications gear. They start training the local population (they'll work for less and don't have to be brought in and out.)

And what does that do for the local population? They start getting wages in a fungible currency. They can afford to have their children educated. They can get medicine. They can bring in electric light to work into the evening. Remember, these places suck. Some of them don't have electricity and are never going to get it on their own. How do they get it? By being "exploited."

When you have nothing, it is good for both sides to hire that person for what a westerner would consider absurdly low wages. For the guy with nothing who gets them, they are a godsend, and the investor gets relatively cheap labor.

The recent hunger catastrophe in Somalia is caused in parts by the "new colonialism". The land, which nomadic tribes used to use for feeding their Cows is now owned by some company. It got sold by the government. Yes their own government drives them off the ground which their ancestors used and "owned" for ages. And the new land owner plants Corn to make some Bio-fuel from it, cause he can get more money for it than selling it to the people starving nearby.

Most of the arabic revolutions have their root in the price rise of the most basic needs (flour, oil, meat).

Capitalism in its uncontrolled way, which currently "rules" the world, will not survive, as the gap between rich and poor will open more and more and lead to more revolutions, which at some point will break the system.

I find it extraordinarily interesting that you would use the USA as an example, considering the method those particular colonists employed to break free from its former masters. Not to mention the original inhabitants, of course, who have yet to see much of a payoff from the whole ordeal.

Also, I'm curious to know which of the categories "third world" or "socialist" you meant to place Greece and Ireland.

Just to see what are you exactly calling Socialism. Because from your posts you don't have a fething clue...

"Even better would be to remove hospitals and schools from the public holdings and make them private and competitive."

Yep. That is why USA is the country who spends more on healthcare and has some of the worst health indicators of the developed world.

"To tax earnings just discourages people from earning, which discourages them from producing."

Don't you have a job? Didn't USA grow between 1945 and 1980? Don't go Austrian on me dude, the facts are there.

"If you could implement it (and it would encourage tons of fraud that would have to be rooted out in implementation) all it would do is to ensure that the capital never made it back into the country and the local market."

Balderdash. This isn't difficult at all. It only takes political will.

"They will start acting like drug lords, and if those guys living in jungles with high school educations can launder their money and evade taxes, you can bet your ass a Wall Street tycoon can get around your dreams."

That is rubbish. The drug lord launders his money through big investment banks that get away with it due to the lack of regulation and, oh I don't know, due to the fact that they own your fucking country.

If an american president had the will and the balls to stand up for Main Street and make the big banks accoutable you would see how simple it was to tax and regulate finance.

But while your country is ran by Goldman Sachs, the Koch Brothers and the rest of those motherlovers yes, you are right. It will be impossible to change anything that benefits the top 1%...

By the way, how's that trickle down effect going for you guys? I would say that with 50 million persons without healthcare probably not to good, but hey, at least you have your FREEEEEEEEEDOM!!!

The system by which resources are redistributed using collective force by the government.

I'll go one further by saying that the free market is where resources are traded by mutual agreement between the owners.

Don't you have a job? Didn't USA grow between 1945 and 1980? Don't go Austrian on me dude, the facts are there.

I don't get your argument. I would have had a job without an income tax too. I would have had a job if I had lopped one of my arms off. I don't see why that says I should be less one arm.

Balderdash. This isn't difficult at all. It only takes political will.

That's like saying that it isn't hard to alter the gravitational constant, you just need enough political will.

That is rubbish. The drug lord launders his money through big investment banks that get away with it due to the lack of regulation and, oh I don't know, due to the fact that they own your fucking country.

No, they get away with it by breaking the regulations. You won't stop the behavior. You will just make more criminals.

Money laundering is illegal in the US. It still happens. Guns are illegal in the UK. They are still there. It's exactly the same thing.

By the way, how's that trickle down effect going for you guys? I would say that with 50 million persons without healthcare probably not to good, but hey, at least you have your FREEEEEEEEEDOM!!!

So, it comes down to anti-American bigotry at the base, which I should have known from the way you ranted to start. It's actually funny that Tobold would let your comment through, but if you were ranting about how America was the way it is because we elected a black president (just another form of bigotry) it would be a problem.

Obama is not a "trickle-down" president. He's a command-and-control socialist president, and it's not working out well. Just like it isn't working out for any part of Europe except Sweden and Germany (which says more about the Swedes and Germans than it does about socialism.)

And you are stupid about your uninsured Americans bit. Here's what you may not know about America -- whether you have insurance or not, you still get medical treatment. It's illegal to not treat someone in America because they don't have insurance, and if that person dies because a doctor refused to treat them, it is murder.

Besides, we passed Obamacare. That was supposed to make everything OK, right?

"Remember, these places suck. Some of them don't have electricity[..]"..THAT was priceless! The priority shift is so insane! I mean, the FIRST application of electrical power was the light bulb less than 150 years ago!! OMG, how could people live before!!

The funniest thing is that you're prolly in the "norm" over there. In France, I don't think even our extremes of the extremes think like you, so to me, it's always a wonder, like you're a robot or an alien, or a cancer or something.

The system by which resources are redistributed using collective force by the government.

That is not the definition of socialism. That is the definition of government. Every single action a government takes redistributes resources. They take taxes, and then redistribute then to pay for roads, schools, or military.

By your definition, George Bush jr. was one of the world's biggest socialists, because he did a lot of redistribution for his Iraq war and his Medicare legislation. More redistribution in fact than Clinton.

By your definition, George Bush jr. was one of the world's biggest socialists, because he did a lot of redistribution for his Iraq war and his Medicare legislation. More redistribution in fact than Clinton.

Sure, I don't argue with that. But not for the reasons you argue it.

Taking for something that actually benefits the general welfare (i.e. you get benefit from it whether you pay in or not, like post roads and national defense) is not socialism. Paying out subsidies, grants, and general dole are.

Yes, public schools are socialism. The military is not. Roads are a grey area. (I think the argument that you benefit from them even if you don't use them personally is persuasive, but I'm not convinced by it.)

Taking for something that actually benefits the general welfare (i.e. you get benefit from it whether you pay in or not, like post roads and national defense) is not socialism. ... Yes, public schools are socialism. The military is not. Roads are a grey area.

There you just say "anything I don't like is socialism, anything I do like is not". I would say that public schools have a much greater public benefit than the military. What exactly is your personal benefit from the Iraq war? General healthcare benefits everybody too, as can be seen by the higher life expectancy in countries that have it.

Oh, and for your info, Ireland isn't socialst. It is currently governed by a centre-right party, and has economic policies that are much to the right of most of the rest of Europe. Which is why it failed hard in the financial crisis, lack of oversight over the banks.

There you just say "anything I don't like is socialism, anything I do like is not". I would say that public schools have a much greater public benefit than the military.

Well, you would be wrong. I wish I could come up with a better argument, but what you are saying is in the same nature as "well, I say the sky is green." You're making the jabberwocky argument -- words mean what I want them to mean when I say them.

National defense is a general welfare issue. Whether you do it or someone else does it, you are going to be protected by them. That's the definition of general welfare. Schools are not. If I don't have kids, I'm never going to benefit from them. Healthcare is the same way. If I never go to a doctor, it doesn't matter to me how healthy other people are. Statistics about higher life expectancy mean nothing to the guy who gets hit by a truck at 25.

The real disagreement is that I am arguing for the individual, and you are arguing for the mob.

Hahaha! So you think you have a higher chance to get blown up by an Hussein-financed suicide bomber than catching an infectious disease from somebody without healthcare?

There are about a million things that the money spent on the Iraq war could have better spent on, each giving you more personal benefit or preventing a higher risk of harm. $1.9 trillion for a war are not an efficient way to prevent a handful of hypothetical suicide bombers from attacking the USA.

Frankly, I'm not sure what your point was in asking in the first place. I'm talking about national defense. You want to dive off into non sequiturs and strawmen, whatever, it's your blog.

Talking about what money could be "better spent on" is the socialism game. It's the purpose of it. My argument is, the money is best spent by the people who earned it, and it generally wasted by the government, no matter what they try to spend it on.

My argument is, the money is best spent by the people who earned it, and it generally wasted by the government, no matter what they try to spend it on.

Which would be a good argument, if you hadn't spoiled it by claiming that all the favorite right-wing nutter causes, like military spending, are except from that rule. If money is GENERALLY wasted by the government, then it is also wasted if they spend it on military. In fact the military is one of the best-known areas of government waste, with many people getting private security at a fraction of the cost the government pays for it.

Which would be a good argument, if you hadn't spoiled it by claiming that all the favorite right-wing nutter causes, like military spending, are except from that rule. If money is GENERALLY wasted by the government, then it is also wasted if they spend it on military. In fact the military is one of the best-known areas of government waste, with many people getting private security at a fraction of the cost the government pays for it.

Which is why I am a libertarian, not an anarchist. I accept that some things have to be done by a government to be done effectively. I think that list of things is very, very short. National defense is one of them. Private security companies can do it, but the tragedy of the commons shows that since everyone benefits once one person pays, no one is likely to do it. This is different than private property, where I think private security could do a much better job that most police forces.

Protecting my property from criminals should be my job. Protecting everyone's property from China should be everyone's job.

And now you've added ad homimen in on everything else with the "right wing nutter" comment. Nice. Wanna tie up the lose ends with a nice appeal to authority before Godwin's Law takes effect?

Reading comprehension fail. I didn't call YOU a right wing nutter. I said military spending is a favorite cause of right wing nutters. And you've been calling everybody else here socialists in nearly every thread, which I'm sure you consider an insult.

Sorry mate but as a whole, way more people benefit in a country from a robust social healhcare system than any military, that's kind of a fact.If you stick to the US, your country would have done just fine with a small and ultra specialised military since the end of the cold war, especially since every single war you got involved in are ones you provoked for some odd reasons.

Another thing you might have missed is that your insanely large military system can very easily be considered as a wellfare system. I mean you got about 1.5M people in there, mostly young. Add to that the insane numbers of veterans. Great way to remove them from the unemployement ratings. And don't come back with "but they are at war" thing please, you got more death in your army from suicide and accidents than you do from actual combat :)

As for private companies doing public service jobs, you're missing an important information:- a Private company does a job for profit AND only profit. That means if you have your local police as a private company and some gang, drug cartel or white collar criminals start paying more than you do, they are not YOUR police anymore.- A public service has only one goal: the good of the community it serves. All their rules and regulations are based around that, profit is not even in the equation.On this topic, you do realise also that more and more of your military operations are run by private companies right? What do you think would happen if the US stopped paying for them? Well, they'd switch to other countries, like they're doing in Saudi Arabia. Why? Because unlike your military force, they are in there for the cash and they go where the money is....and lately, the money isn't in the US :)

As for "forced healthcare", the point here is that NOBODY ever knows when they'll need it and that overall, it's cheaper for EVERYONE if everyone chips in, should something happen.In the US, if you cut three fingers while working on something, you're pretty much ruined or you end up having to choose which fingers you can afford to fix.In France, you just go to the hospital, they fix it, and you go home, pretty much free of charge.Personally, I'm never sick and haven't use the healthcare system we have since I became an adult, 18 years ago. But I also don't think like a teenager anymore going around affirming that I don't need that crap because I'll NEVER get sick. That's just..puerile.

Finally, if you let people defend, to the best of their abilities, their own properties, with any means possible, you end up with guys shooting dead some 15 year old kid trying to knock over a mailbox. In France, even in self defense laws, we have a clause that specifies that properties are NEVER worth taking a life. Guns ownership is strictly controlled and it's forbidden to carry guns anywhere.Which one works better? Well, you guys got 7 times the number of gun homicides we do, more than twice the gun related death-rate, 8 times the accidental death-rate and 3 times the suicidal death rate via guns. Simple math should do the trick there...

Overall, I DO agree that goverment should not involve itself in evertyhing but education, healthcare, food & water regulation and of course defense (internal and external) are the very basics of what it should handle. You CANNOT let private companies handle these things because only a public system can ensure that these sectors are developped for the good of the people, not for profit.

I think the problem is that some people believe that private run companies main interested is the production of goods, while it is actually the production of money ... so the money making is optimised and not the good production.

As the decision-making management is in 10/10 cases paid based on their money producing performance and not the quality of their goods, I see a certain motivational problem.

I don’t think the problem is with how businesses apply accounting, and I don’t really see how your example can be applied to the real world. Sorry Tobold.

The problem lies with the legislation that defines what corporations can (legally) do, and what they are required to do (ie, make maximum profit for their shareholders).

As it is, corporations are the ultimate evil. There is not a single thing that isn’t a resource to them. Labour, environment, raw materials, customers, even the shareholders are just another way to get money for a corporation. It has devolved into a steaming pile of “us vs them”, where every dollar spent is just one less dollar for the coffers. There is no impetus (other than for public relations reasons) for a corporation to care about levelling the entire Amazon basin, buying all the arable land from the woefully poor in Africa, and if it wasn’t for some pesky laws (and the aforementioned public relations thing) I’m sure those at the top of the chain wouldn’t have any compunction with just killing people if it meant making a bit more profit.

Hell, that last point can be crossed off the list if we start looking to Haliburton, which is the private army employed by the US government. The good thing with privateers, is when they kill some civilians the politicians who signed off the contract can just wash their hands and say they had no control over the matter. And Haliburton (and others, but I’m using H simply as the example here) does this just for the profit.

Corporations want free workers with no safety/working regulations. If they can sell the shoes mentioned in a previous post for $200 but have no labour cost then they’re simply laughing. If the employees are currently costing bucks, but then reduced, it’s unlikely that those shoes will lower in price: the consumers have already tacitly agreed that they are willing to pay that much. If some indentured slaves die in the process of putting the shoes together, then so be it.

Every decision made by a corporation is based around financial risk, nothing more. Car makers, upon finding a potential fault in a vehicle (like, say the brakes failing under certain conditions) will have their bean counters work out the cost of a recall against the cost of paying out lawsuits. Who gives a toss if people are killed in accidents? Not the corporation – they’ve sold the car already and effectively made money by not recalling the faulty vehicles.

The adage of “money is the root of all evil” sums up a corporation. It is their one and only goal. Social responsibility is just a stupid term that idealists use, doing the right thing is something that some socialist weirdo says.

But there is currently little or no way of changing things. The corporations point the ‘controlling’ governments in the direction they want. The rich 1% throw fistfuls of money at the politicians to ensure that their hold on the ~40% of the wealth remains that way. The poorest 20% are lucky if only one of their kids die from a lack of necessities (food, healthcare etc).

I do agree that we’re on the slow cusp of social upheaval. Riots will become more common, and spread throughout the world in a domino effect. They will become larger and more violent, and somewhere along the way it will no longer be about the lootin’, but more about forcing fundamental changes in the governance of the nations. It will be about the poorest (and some of the not so poor) asserting their strength in numbers by taking back some of that 40%, attempting to minimise the insane gap between the wealthy few and the struggling many.

The first thing that will need changing will be the corporation laws. With the government(s) no longer under the thumb of the rich, social responsibilities will need to be built into business law. Stricter anti-corruption legislation will take hold to ensure those in power don’t just answer to the tiny few that “earn” millions a year.

Phelps, if you’re still reading, this part will appear to be an anti-American rant, but it’s not. It’s a rant about you, and people like you. The ones who think that capitalism can only be good.

You seem to overlook the vast amounts of laws that are in place to control the economic theory that you love so much. Anti-trust, anti-collusion, gifting, the list goes on. Because unbridled capitalism is broken from the outset. The first company that creates a monopoly, wins. They can undercut any competitors due to huge profits reaped from previous years, forcing the market to revert to a single entity only. Suppliers of raw materials will be forced to sell to the monopoly at the thinnest of margins, as that is effectively the only way they can earn money.

Tell me how capitalism would fix this. No matter what a competitor may try to do to get some of that market share, the monopoly can destroy them (through buy-outs or force-outs). The consumer pays in the end. When there’s no choice but to pay top dollar for essential items, the monopoly becomes stronger.

The western world is looking down the barrel of its hubris. The 80s saw the surge in the mantra “privatisation is best” and critical services were lost from the public. Power generation, water, rail systems, hospitals and schools. Speaking from an Australian perspective, it’s only been bad for us. We’re paying more now that things aren’t about fair share, but about profit. Why sell 1kWh of electricity for $1 when you can sell it for $5? Everyone “needs” electricity. The companies are only motivated by their shareholders so will of course charge the most they can. There would be some soulless accountant who would work out the break even point between defaults and maximum price.

I will readily admit that governments have terrible records of wasting money in running services. In no way will I say that they’re more efficient than a private entity. But they are motivated by a different cause: they are for the public, not the shareholders.

I’m not saying that socialism or communism is any better, but arguing that capitalism is not the shining beacon of good and right you say it is. Sure you might be a multi-millionaire, and good on you, but why do you think that the people who clean your toilets are worth nothing? You’d be the first person to complain if you had to clean your own shit up, yet you expect some underpaid and overworked lackey to put their hands down your dunny just so you can see your reflection in the porcelain. Can you not see how that is broken?

You will now argue that those people under capitalism, are able to go out and educate themselves so they can ‘better themselves’. But they can’t and the system ensures that it stays this way. The cost of education is exorbitant, even with government assistance. The fact that you work 10 hours a day cleaning other people’s piss and shit, means that you have virtually no time to work on your assignments. You can’t quit and study full time because you still need to eat and live somewhere (ironically the government “wealth distribution” that you despise tries to fix this problem; another aspect of how capitalism fails).

You want to see a brief glimpse into how bad it is being poor in a capitalist utopia (like America claims it is)? http://www.cracked.com/blog/5-things-nobody-tells-you-about-being-poor/ . Sure, it’s a comedy site, but it gives you a few points to consider.

You can admit that capitalism doesn’t work. It’s ok. The world won’t end.

What we do need is a modified version of what we have now – socialism and capitalism mixed up. It’s necessary, and with the right balance we will find that everyone has access to the basic things that enable continued life, all the while encouraging everyone to get involved and be productive. It will reduce the wealth gap, but not remove it entirely (as there must be a reason to aspire to greatness). It will let those who pursue enterprise succeed, and let those who seek nothing but a free ticket fall behind.